Correlation Between Hennessy Capital and HHG Capital

Can any of the company-specific risk be diversified away by investing in both Hennessy Capital and HHG Capital at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Hennessy Capital and HHG Capital into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Hennessy Capital Investment and HHG Capital, you can compare the effects of market volatilities on Hennessy Capital and HHG Capital and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Hennessy Capital with a short position of HHG Capital. Check out your portfolio center. Please also check ongoing floating volatility patterns of Hennessy Capital and HHG Capital.

Diversification Opportunities for Hennessy Capital and HHG Capital

0.14

Correlation Coefficient

Hennessy Capital  HHG Capital

Average diversification

The 3 months correlation between Hennessy and HHG is 0.14. Overlapping area represents the amount of risk that can be diversified away by holding Hennessy Capital Investment and HHG Capital in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on HHG Capital and Hennessy Capital is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Hennessy Capital Investment are associated (or correlated) with HHG Capital. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of HHG Capital has no effect on the direction of Hennessy Capital i.e., Hennessy Capital and HHG Capital go up and down completely randomly.

Pair Corralation between Hennessy Capital and HHG Capital

Assuming the 90 days horizon Hennessy Capital Investment is expected to generate 2.16 times more return on investment than HHG Capital. However, Hennessy Capital is 2.16 times more volatile than HHG Capital. It trades about 0.18 of its potential returns per unit of risk. HHG Capital is currently generating about 0.2 per unit of risk. If you would invest  8.00  in Hennessy Capital Investment on September 5, 2024 and sell it today you would earn a total of  5.00  from holding Hennessy Capital Investment or generate 62.5% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Insignificant
Accuracy	54.84%
Values	Daily Returns

Hennessy Capital Investment  vs.  HHG Capital

Hennessy Capital Inv

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days Hennessy Capital Investment has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly abnormal forward indicators, Hennessy Capital showed solid returns over the last few months and may actually be approaching a breakup point.

HHG Capital

Risk-Adjusted Performance

0 of 100

Good

Over the last 90 days HHG Capital has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly abnormal fundamental indicators, HHG Capital showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Hennessy Capital and HHG Capital

The main advantage of trading using opposite Hennessy Capital and HHG Capital positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Hennessy Capital position performs unexpectedly, HHG Capital can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in HHG Capital will offset losses from the drop in HHG Capital's long position.

The idea behind Hennessy Capital Investment and HHG Capital pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Money Flow Index module to determine momentum by analyzing Money Flow Index and other technical indicators.